Bridging Loans For House Purchases – Your Options

It is a common occurrence in today’s market for new home buyers to find their dream property before they have sold their current property. While many homeowners cannot afford to buy a home outright, and often have to wait until their current residence sells to buy a new one, the property they desire is often sold and off the market before they even have a chance to put in an offer.

A way to remedy this situation is to utilise a bridging loan to help facilitate the dream property’s purchase while the current property is still on the market. Here is what you need to know to use bridging loans for home buying.

It is Important to Sort out Logistics before Applying for a Bridging Loan

Even though there may be a short amount of time in which to fund the purchase of a home, it is important to think about how much financing is needed to make the purchase a reality, especially when applying for a bridging loan. One of the first things to consider and decide on is how much funding is wanted or needed to make the purchase.

You will need to decide if you want to secure funding just for the price of the home or enough of a loan in order to cover surveys, legal fees, closing costs, and other additional expenses. Once you have chosen an amount, it is important to compare different loan offers.

Many loan brokers who offer bridging loans for home purchase will put a limit on the amount of funding they will provide. If you have determined that you need to borrow a larger amount of money, this will rule out some of the potential lenders that can be utilised.

In addition to maximum loan amounts, some lenders also set minimum loan amounts – this strategy helps to make bridging loans financial worthwhile for lending institutions. One way to combat this is to include all additional costs into the amount of the loan, even if you have the resources to pay for them yourself. Remember – always shop around with different lenders and institutions in order to find the best possible deal and loan terms.

Decide How Long the Bridging Loan is Needed

Another logistical aspect that should be determined before applying for a bridging loan is the amount of time that will be needed in order to successfully pay off the loan – even if you do not have a sale date in mind, you will need to give the lender a general time frame.

It is important to remember that bridging loans are traditionally used to “bridge the gap” between financial swings and are not meant to be used as a long term financing solution. If you are confident that the current property being will sell quickly, the timing of the loan should not be an issue – many lenders offer very short terms on bridging loans that could last from a few days to a few months.

If you think it will take longer to secure funds for repayment, make sure to take interest payments and extension fees into account.

What You Should Know about Bridging Loan’s Loan to Value

When bridging loans are used to purchase property, they are considered a secured loan. This type of financing is most traditional and often always secured using the Loan to Value, or LTV, of the property being purchased. Just like with traditional mortgages, bridging loan lenders will set a maximum Loan to Value percentage on all bridging loans that are used in this manner.

Bridging loans usually hold an LTV of up to 75 percent, meaning that borrowers will have to fund the additional 25 perecent of the purchase on their own or by use of another funding method. Some lenders will offer higher Loan to Value percentages, based on the specific situation but whatever the amount of the loan it is important to be confident that you meet the lenders borrowing criteria before applying and search out different lenders for the best deal.

What Additional Costs are Involved with Securing a Bridging Loan?

One of the most common costs associated with a bridging loan are monthly interest rates. Since the terms of these loans are often short, and the interest rates often higher than other loans, it is important to keep in mind that bridging loans are often an expensive way to borrow money. Aside from monthly interest rates, lenders may include additional fees and charges that cover a variety of different purposes.

These charges may include valuation costs which help to determine the property’s LTV, early repayment charges and application or arrangement fees. You will also need to hire a solicitor to help arrange the logistics of the loan and purchase of the home with you. Most lenders require borrowers to utilise their own solicitor services, so it is important to also include those additional costs.

When trying to purchase your dream home, it may seem impossible to find the funding you need if the current residence has not sold yet. Although bridging loans are often an expensive way to borrow money, they can be an ideal solution to help homeowners bridge the gap from where they are to where they want to be by making needed funds available.

It is always important to take time to sort out loan logistics before applying for any financing, as well as shopping different institutions and lenders to make sure you are getting the best possible deal with the most appropriate terms for your unique situation.